We think we’re smart, then the interest rate comes and science stops

People think they are smart when it comes to money, and then if they have to answer some questions about financial literacy, it turns out there is more to learn. According to a recent OECD

People think they are smart when it comes to money, and then if they have to answer some questions about financial literacy, it turns out there is more to learn.

According to a recent OECD study on the G20, many people lack basic financial knowledge, and calculating interest rates is already difficult, not to mention understanding diversification. Suspectedly, this is no different in Hungary. Of course, there are countries like France or Norway that have been modeled on financial awareness, but Italians are more likely to hide their results.

The main findings of the study are

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  • Many people lack basic financial knowledge: in the G20 countries surveyed (Dutch and Norwegian are also guest speakers), less than half of the respondents were able to answer 70% of the financial questions (70% is the minimum target). Understanding diversification or compound interest is particularly difficult: 4 out of 10 did not understand the importance of diversification, and only 27% of respondents were able to count on simple and compound interest.
  • Families are also very bad at financial planning: on average, only 3 out of 5 households budget, but there is considerable variation across countries. Foam on the cake that a quarter of respondents disagree with the statement that “before I buy something, I think about whether I can afford it”, also a quarter of respondents don’t always pay their bills on time, and a third of respondents have done so in the last 12 months that the income did not cover their living expenses.
  • There are also concerns about the way people choose financial products for themselves, with only 15% of respondents using independent sources to compare products and providers. Not surprisingly, those with financial and investment products also measured higher financial well-being.

Interest rate, what?

Interest rate, what?

Financial awareness in the OECD report outlines three indicators: financial literacy, financial behavior, and financial attitude. In financial literacy, people’s awareness of basic financial concepts and relationships is examined. As it turned out, not so much:

  • Only 53% of respondents were on average aware of what would be the value of money if the inflation rate remained unchanged for a year; For example, in Indonesia, only 14% knew the connection, in Mexico it was 74% and in Norway 76%.
  • The good news is that, on average, 4 out of 5 people understood the interest and the connections, but in Italy, India, Saudi Arabia and South Africa, at least three out of 10 people gave the wrong answer.
  • More than half of those surveyed were able to count simple interest on their savings, but in Mexico, for example, their share was only 12%. By contrast, only 42% were able to give a good answer to interest rate issues on average, with few exceptions at country level who knew that it would not be enough to take five times the annual simple interest rate, for example, to determine 5-year interest rates. .
  • On average, 78% of respondents are aware of the relationship between return and risk, even the concept of inflation is relatively well known. What is more challenging is the understanding of diversification, for example, only 37% of Italians knew what was important and why it was important for investment.

If we look at the percentage of the population

That has reached the minimum level of financial literacy in the surveyed countries, we see that South Africa, India and Italy are the ones most likely to develop financial literacy, while Norway, the Netherlands and Korea have the least.

It is interesting that, for example, the British population is below the OECD average (48%) who are able to answer financial questions correctly at least 70%.